Van Dyck Law, LLC is a full service Estate Planning & Elder Law practice. They write about comprehensive planning in the areas of wills, trusts, powers of attorney, medical directives, Elder Law and probate & estate administration.

Trusts and Estates

09/24/2018

“The reality is that your traditional estate plan will result in a 70% chance that your wealth will be lost by the second generation, and a 90% chance that your wealth will be lost by the third generation.”

You may have a traditional estate plan that includes a last will and testament, powers of attorney, a health care proxy, living will and perhaps a revocable living trust. You may even have an irrevocable life insurance trust that owns your life insurance policies to avoid potential estate taxes and to protect the policy proceeds from creditors. Finally, you’re considering transferring a minority share of your business to a family trust. This will move assets out of your estate, mitigate estate taxes and protect the assets from creditors. However, you have some questions about whether this traditional estate planning will be successful.

Forbes’ recent article, “How To Turn Your Estate Plan Into A Legacy Plan,” says that perhaps you’ve also heard that legacy planning is the solution to your problem. However, you are worried about the expense. If you create a legacy plan, does it mean you’ve wasted time and money? No, it doesn’t. The documents you’ve already prepared for estate planning, can most likely be used and incorporated into a more effective legacy plan. Let’s look at how to turn an estate plan into a legacy plan.

Form A Legacy Team. This effort takes a team. You need a team of professional advisors working together to move you towards success. A legacy team will typically begin with three main areas of expertise: legal (estate planning attorney), tax (accountant) and wealth/financial planning (wealth advisor). From there, the legacy team may expand, based on your needs and circumstances. Your team’s makeup will depend on you and your family’s specific needs and circumstances.

Get A Legacy Mindset. Think “process” versus “plan.” Traditional estate planning is often seen as complete, once estate planning documents have been prepared and signed. However, the reality is that after you’ve created legal entities and a structure for your estate and/or legacy, you’re just at the start of the process. The legacy plan is a recipe for your success and the framework through which your legacy is going to thrive and grow.

Educate Yourself on What You’ve Already Created. With your legacy team in place and with your legacy mindset, understand what your existing estate plan does and doesn’t do. Review your estate plan and determine if it distinguishes between legacy and non-legacy assets (which almost always should be handled differently on your death). You also need to plan for your life and how to build the legacy you ultimately want to leave behind through specific assets in your estate.

Design and Execute the Plan. Your legacy plan is about establishing and committing to a process that lets you and your legacy team remain proactive and intentional in implementing your legacy plan. The right process and legacy team will ensure that your plan evolves with you, and they will move you forward to achieve your greatest legacy and success.

09/21/2018

“When McCain ran for president, the opposition research laid bare the number of houses the family owned and how the ownership was structured.”

The late Senator John McCain of Arizona appears to have taken care of his estate planning.

The money is all his wife Cindy’s, and it stays Cindy’s.

Wealth Advisor reports in its recent article, “Tradition, Money, Dynasty: Can Meghan Keep the McCain Legacy Alive?” that there are several family trusts passing Cindy’s family property down from her parents to the McCain descendants. Those trusts hold the houses, her family beer business and various assets that are worth close to $200 million.

McCain’s side of the family legacy is much less complicated. He looks to have amassed $15 million on his own or in marital property.

It will be a rather small inheritance for his heirs, compared to what they’ll inherit from Cindy. However, the big issue may be identifying those heirs who will take up his social agenda.

The four McCain children are going to be as comfortable as they need or want to be. It’s more than likely that they’re sharing in the income from their grandmother’s trust already, and one day they’ll also inherit Cindy’s wealth.

With that money in the future, the Senator’s kids are free to do whatever they want with their lives. Meghan is a television personality and a professional “next-generation Republican.” She’s female, she’s educated, telegenic and just like her father, she’s not afraid to claim a “maverick” position every once in a while.

If you’re curious about a trust for your family, talk to an experienced estate planning attorney for more information.

09/15/2018

“When nearly seven decades of hard work and record sales translate into, at best, a quarter of Taylor Swift’s career earnings, the generational scale is broken.”

It’s become a common scenario: a star who worked past their traditional retirement age and was beloved by generations dies with career earnings that wouldn’t even pay a corporate CEO salary for one year.

She sold 75 million records and is credited as a songwriter on hundreds of albums by other artists. However, even the most generous estimates of her career earnings are no more than $80 million.

Compare her to Taylor Swift. She started at about the same age, has been working one fifth as long and the same calculations say she’s worth more than $300 million.

The mega stars in Aretha’s imperial period didn’t earn as much as they do today. Management was often aggressive and took a huge chunk of every dollar earned from the artists’ record sales, concerts, merchandising, and media appearances.

Aretha also didn’t do herself any favors, by allowing her husband to manage her early career. When they divorced, he took a lot of her lifetime earnings with him. A raw deal or not, it was the way the industry worked at the time. As a result, paying alimony meant she had to keep working for her ex.

That may be why Taylor Swift hasn’t gotten married. Despite a finely crafted prenuptial agreement and trusts to protect her money, a wrong decision could cost her hundreds of millions of dollars.

The music industry has changed dramatically. Traditional revenue sources never really grew much bigger than they were in the 1960s. Some, like selling the actual music, tanked and have yet to revive. Today’s music icons, like Taylor Swift, thrive because they manage their own tours and take in ticket income rather than record sales. Many own their own publishing outlets, and that maximizes their percentage of every song they sell. That’s not how it worked in Aretha’s day.

However, Aretha died with money in the bank. Her children will inherit considerable sums. She most likely gave huge amounts to charity and did it in the most tax-efficient way her advisers could find.

For Aretha, her record sales will spike and unreleased material will get monetized. Her image, name, and authorization will generate merchandising and royalty income. Her brand will also continue to live on forever.

11/29/2017

“If you have lots of money, you will want to decide which state would be advantageous to die in.”

Being a snowbird, living six months in Michigan or Nebraska and six months in Florida or Arizona, can be a great life style in retirement. However, one place needs to be your legal residence. Ask yourself where are you from, or where do you vote?

The federal exemption, the amount you can give away without incurring federal estate taxes, is $5,490,000. That can be a pretty high mark, so most individuals dying between now and December only have to worry about state estate taxes.

Ask an estate planning attorney about the estate tax laws of the state where you’re considering moving. There are 15 states that currently have an estate tax upon death, and six states that have an inheritance tax.

For example, Massachusetts is one of the 15. Its state exemption is now $1 million. That means if your estate is larger than $1 million, you could owe Massachusetts estate taxes. On the other hand, Florida, which is always seeking to attract more residents from the north, doesn’t have either an estate tax or an inheritance tax.

New Hampshire is the only state in New England without an estate tax.

It’s not uncommon for a person to own property and pay real estate taxes in both states, to have a bank account in both states and to purchase insurance in both states. Nevertheless, you can only live in one state. You’re just visiting the other state. Six months and one day determines where you live and where you vote.

If you own property in different states, it may mean that your heirs will need to go through the probate process upon your death in more than one state. Consider creating a trust and having the trust own the real estate to make the transfer of property less troublesome at your death.

Snowbirds should also look into executing a Durable Power of Attorney for each state. In that way, if they do need legal or financial decisions made by another person, they will have the documents available to help them. This is an absolute necessity if you have property or bank accounts in both states.

10/31/2017

“Do we need a trust? This is one of the most common questions people have when they start to discuss their estate planning needs.”

A trust is a legal vehicle for managing financial assets for the benefit of you and/or someone else. The property owner (the grantor or settler) transfers legal ownership to the trust, and a person or institution (the trustee) manages that property for the benefit of the beneficiary. It sounds pretty clear cut, but it can get complicated.

Trusts are used primarily to save on estate taxes. This depends on the type of trust and the size of the estate. A trust may impact estate taxes, but that’s determined by the tax law in effect at the time the grantor dies. The same is true of income taxes.

My estate is too small for a trust. Regardless of the estate size, trusts can be used to manage assets and control their distributions in a private way. This is because they aren’t public like probate court. A trust can contain provisions to manage your assets, if you become incapacitated and are no longer capable of doing so yourself.

Trusts limit your flexibility. This is not necessarily true. It is because a revocable trust can remain under your control as trust creator and be modified as you want in your lifetime.

You must designate a friend or relative as trustee. Perhaps. The trustee must manage and distribute trust assets according to the terms of the trust. However, not everyone is up to the task of being a trustee. Designate a successor trustee, in case the primary trustee is unable or unwilling to serve.

A trust will protect you from creditors. Some trusts are specifically designed to protect a grantor from creditors, but not all of them do this. Asset protection can be very complicated and expensive. Therefore, if you need to have these protections, work with an experienced estate planning attorney.

10/20/2017

“If you have concerns about a will challenge, the first thing that you should do is talk to the attorney.”

The Northwest Indiana Timessays in its recent article, “Choosing an executor,” that will challenges are pretty rare. A successful contest can stem from an issue with the will making process.

That’s all the more reason to use an experienced estate planning attorney to help you create your estate plan. It’s the common mistakes that cause the most trouble, especially when a person tries to save money and do it themselves. If you work with an attorney who focuses on wills and estates in your state, he or she will know when a law changes—and how it can impact your plans and objectives for your legacy.

The time to think about a possible will contest or challenge is in the initial planning process. If you and your attorney discuss your concerns from the start, he or she can plan around them and design tactics that can avoid or reduce the chances of a will contest.

It’s much simpler to tackle a problem now, than to try to solve it later after you’re not around. When working with your lawyer, the more information you offer, the more likely the problem can be addressed and avoided.

For example, if you are considering favoring a daughter who has taken care of you for many years but worry that the other children will be upset, discuss this with your estate planning attorney.

Your attorney may ask you to get a letter from your physician. That letter should confirm that, that in his or her medical opinion, you’re of sound mind and have the capacity to make your own decisions. Capacity is a common challenge to a will. A begrudged heir may claim you were not mentally capable of signing a will.

Your attorney may also record the will signing, so there’s evidence that you weren't under another person’s influence or pressured into signing the will. Don’t be surprised if your attorney asks that the care-giving child isn’t at the signing, to lessen the concern of undue influence.

Some folks will leave a person they intend to disinherit a dollar. That won't do anything, except cost your estate a dollar. Just because you left them a dollar, doesn't mean they can't challenge the will.

Some people also want to have a term in the will stating that anyone who challenges the will is disinherited. However, that is not a 100% lock. This provision, known as an in terrorem clause, is unenforceable in many states.

Speak with an experienced estate planning attorney and plan for the challenge. Odds are it will never arise. However, if it does, by taking these steps, your family will be ready and your wishes will be honored.

09/06/2017

“Advocates for the elderly persuaded federal housing officials two years ago to offer more rights and protections to the spouse of a borrower, who takes out a reverse mortgage and later dies.”

There’s a concern that a subtle wording change in the Trump administration’s proposed budget request for the Department of Housing and Urban Development (HUD) could undo some of the protections for the spouse of a borrower who takes out a reverse mortgage and then passes away. It could mean increasing the chances that a surviving spouse who didn’t sign the mortgage documents, could lose his or her home in a foreclosure.

The New York Times recently published an article, “2 Senators Question Effects of a Reverse Mortgage Proposal.” The article reported that two U.S. Senators sent a joint letter to Ben Carson, the Secretary of HUD and Mick Mulvaney, the Director of the Office of Management and the Budget. They sent the letter two months ago to get some clarity on the proposed wording in the budget request. Senator Marco Rubio (R-FL) and Senator Catherine Cortez Masto (D-NV) asked whether the agency was seeking to reverse the previous change in policy.

There’s been no response from HUD about its intent for reverse mortgages, which allow the elderly to use the equity they’ve built up in their homes. That is causing concern, because reverse mortgages are seen as crucial in helping some in the aging population plan for retirement. Before the change in policy two years ago, a surviving spouse who hadn’t signed the mortgage frequently had to pay what was left on the loan in full or risk being evicted in a foreclosure. The two senators say the old policy is a “loophole” that had “compounded the stress faced by widows and widowers at a time when they were already grieving the loss of their spouse.”

The specific language in question is a proposed change in the National Housing Act that says, in regard to reverse mortgages, that a mortgagor “shall not include the successors and assigns of the original borrower under a mortgage.” The phrase is in a section of the Act providing the types of reverse mortgages eligible for insurance guarantees from the Federal Housing Administration, a division of HUD.

The revised wording can be read as suggesting that a surviving spouse isn’t necessarily entitled to stay in the home. However, at the same time, Trump’s budget proposal includes a new line that would give the Secretary of HUD broad discretion to determine if a loan is payable after the death of the borrower.

“HUD’s proposed changes to reverse mortgages included in the last budget raised concerns that the administration may be seeking to undo hard-fought existing protections,” Senator Cortez Masto said in an emailed statement on Tuesday. “I hope the administration can make clear that they’re not looking to push seniors out of their homes after the death of their spouse.”

HUD extended the protections to surviving spouses after several lawsuits and negative news coverage about spouses being thrown out of their homes after the death of a partner. Some experts say that with home prices increasing again and a growing number of baby boomers reaching retirement age, there will be renewed interest in reverse mortgages, as the elderly look to supplement their living expenses.

08/07/2017

“Alan Thicke's widow is firing back at stepsons Brennan and Robin Thicke, asking a judge to reject their ‘unnecessary’ request for court intervention in their effort to divvy up his estate.”

Alan Thicke's widow's attorney filed a motion to dismiss last week, calling the sons’ May petition for "instructions" on their dad's living trust, a misguided maneuver “premised on a make-believe contest where there is no real controversy." The lawyer said Alan Thicke's widow Tanya Callau never challenged the trust and isn’t planning to formally challenge the prenuptial agreement she signed when she married him in 2005, as reported in The New York Daily News article, “Alan Thicke's widow seeks court order to stop stepson Robin from challenging actor's will.”

Callau's filing comes two months after Thicke’s sons started the fight by contending that she was trying to get more of the late actor's estate than she deserved. They made news by alleging that Callau "threatened" adverse "tabloid publicity", if they didn't agree to mediation and "succumb to her demands." Robin and Brennan said they felt compelled to "honor the memory of their father, protect his legacy and to prevent his testamentary intentions from being undermined by (the) avarice and overreaching of his third wife…." The filing says that Thicke's aorta ruptured after developing a tear, the reason he collapsed while playing ice hockey with their younger brother Carter Thicke.

The sons are the trustees of Thicke's multimillion dollar estate. They say their dad made Callau the beneficiary of a $500,000 life insurance policy, and his union and death benefits. Thicke also left Callau all the furniture at their ranch and said she could continue to live there, if she maintained it at her own expense—with its four parcels held as a single property by the trust. Thicke said his wife would then receive a 40% share of the balance of his estate, with his three sons each receiving a 20% share.

Tanya claims there are several problems with the trust and the prenuptial agreement, the sons’ paperwork filed in Los Angeles County Superior Court said. The sons said the Bolivian-born actress claimed Thicke promised to leave her the ranch. "Now that the co-trustees have had their chance to smear Tanya in the tabloids, whose only crime was loving Alan with everything she had for seventeen years, it is time to dismiss this petition," her filing said.

Thicke and Callau met in Miami in 1999 and were married 11 years, when he died. They signed a prenup four days before their wedding. Tanya didn’t have an attorney review the document. Her attorney claims the prenup is so poorly drafted that invalidating it would be “a foregone conclusion.” But Tanya won’t challenge its validity, her new filing said. Nonetheless, her motion cites several alleged deficiencies in the prenup. Her lawyer noted that the document states that Thicke and Callau had been discussing the agreement for "___" amount of time and left the line blank. The lawyer also said the document erred when it claimed the parties "acknowledged" California law dictated earnings from "personal services" after the marriage would be treated as separate property. But under state law, the earnings are community property. Callau's attorney criticized the document's mutual waiver of spousal support, calling it "clearly unconscionable given Alan's representation of net worth of approximately $20 million at the time."

07/10/2017

“The longevity of successful retirement cannot be overstated, thus the importance of building, preserving and protecting one’s assets during retirement.”

When we look at the steps taken in our investing lives, the basics are simple. As working investors in the initial stages, the priority is accumulation and growth. Therefore, we participate in retirement plans such as IRA’s, 401-k plans, etc.

As Marco Eagle’s article, “Money Talks: Estate planning tools” explains, the next phase is the retirement stage, when the focus shifts from accumulation to preservation and maintenance of the nest egg.

Growth is a component of any retirement plan, but protecting your purchasing power during retirement is critical. You also want to generate a predictable stream of income during retirement, in order to avoid compromising your lifestyle.

The final stage of successful retirement planning is often overlooked: that’s the estate planning phase or the strategy of a succession plan to pass assets to your family. There are many estate planning tools that can be used to execute an estate plan. You can create a personal trust. Under this arrangement, your assets are transferred into a trust during your lifetime and then transferred by the trust at death. It’s important from both a tax standpoint and an allocation standpoint, regarding who receives what and how much. This is what your estate plan does for you and your family.

Work with an experienced estate and trusts attorney to establish your estate plan, so you can achieve your final objectives when passing assets to the next generation. Some individuals like the ability to exercise control with an effective plan to pass assets to their beneficiaries, without the need of trusts or probate.

There are many types of insured annuity strategies that will pass assets immediately to the beneficiaries, without the need of probate. Avoiding probate is frequently part of a strategy to make the assets available, immediately after the death certificate is issued.

Some see the foundation of their estate planning as the incorporation of life insurance. This lets the beneficiaries inherit assets, generally tax free. Avoiding a taxable event upon death is also appealing, based on both taxes as well as overall portfolio values. Talk to a professional about your situation.

Prince. The rock star died in April of 2016 without a will. Since his passing, a will still hasn’t popped up. As a result, the Minnesota judge overseeing the administration of his estate has had to handle all of the people claiming to be his kids, who’d get a share of his estate under Minnesota’s intestacy laws. The judge has already excluded 30 would-be-heirs from inheriting a portion of his estate. It looks like Prince’s younger sister and five half-siblings were his only heirs. The judge ordered genetic testing to make sure, and pending the results of the tests, they’ll divide his estate, which is valued at about $200 million. The lesson here, of course, is the most basic: complete an estate plan and keep the documents in a safe place where people can locate them when you pass away.

Frank Sinatra Jr. The son of the famous crooner died in March 2016. At the time of his death, his ex-wife Cynthia had filed for divorce and the two were in litigation. They had originally separated in 2001, but continued to live together, even buying a home together during their separation. Sinatra was ordered to pay Cynthia $5,000 a month in alimony and did so for eight years more than the judge required. Cynthia also said he called her his wife at parties. This supports Cynthia’s claim that the two were in a common-law marriage. In 2013, she filed for divorce again, and a Texas district judge awarded Cynthia the second divorce. This judgment included a $500,000 equalization payment, a share of his property, and another $5,000 per month in spousal support. Sinatra’s appeal was pending when he died, and the appellate court reversed the trial court. That court cited the fact that the couple filed separate tax returns, listed themselves as single tenants in common for the house they purchased, and that Sinatra labeled Cynthia as his ex-spouse in tax returns. The court also noted that a common-law marriage requires a specific and mutual agreement in Texas.

Sinatra could have avoided this by being more careful with his decisions and actions (like consulting with and listening to his estate planning attorney!). Many states don’t recognize common law marriage. Where it is valid, however, folks should exercise extreme care so that their actions don’t give their lover a basis to claim that the parties had a common-law marriage.

Jose Fernandez. Marlins pitcher Jose Fernandez died last fall in a boating accident off the coast of Miami. The 24-year-old was unmarried, and he reportedly named his mother as the sole death beneficiary in his trust. At the time of his death, Fernandez’s girlfriend was pregnant with their child, but because she wasn’t named in the trust and not married to Fernandez, she’ll miss out on millions. It also looks like Fernandez’s child wasn’t provided for in his trust, but the child wasn’t intentionally left out of the will, so little Penelope still is entitled to a portion of the estate. Time will tell if this will end up in court.

Tom Clancy. Best-selling author Tom Clancy passed away in 2013, leaving an estimated $80 million estate that saw a lot of litigation in 2016. Clancy’s estate plan had three groups of assets. One funded a trust for his second wife, Alexandra Clancy, as the sole beneficiary. The second funded a trust for the benefit of Alexandra and Alexis Clancy, the minor child of their marriage. And the final bucket was for the benefit of each of Clancy’s four children from his first marriage. Originally, estate tax on the estate was to be shared equally between the second and third buckets—the four children would be responsible for $7.85 million of taxes, and Alexandra and Alexis would be responsible for another $7.85 million of taxes. But just before he died, Clancy signed a codicil including a clause that stated that “[n]o asset or proceeds of any assets shall be included in the Marital Share of the Non-Exempt Family Residuary Trust as to which a marital deduction would not be allowed, if included.” The Court of Appeals of Maryland said that the codicil shifted the entire tax burden to the four children’s trusts to maximize the amount exempt from federal estate taxes under the marital exemption. The four children will now be jointly responsible for $11.8 million worth of estate tax. That’s a lot of Bourne novels.

The lesson for “regular” folks: sit down with an estate planning attorney and map out an estate plan, then execute the necessary documents. Your personal business might not be the stuff of gossip columns and celebrity websites, but that’s no reason not to protect your current spouse, your children and your legacy by taking care of these matters.